How international physical presence and infrastructure differences moderate the link between digital internationalization and MNE performance

Abstract

While prior work has predominantly studied the performance implications of multinational enterprise (MNE) physical internationalization, research on how MNEs perform when simultaneously coordinating international digital channels and physical presence remains scarce. This challenge is particularly acute in retail, where the strategic convergence of born-digital retailers expanding physically and traditional retailers going digital creates new cross-domain challenges. Nonetheless, the impact of international physical presence and differences in home country physical infrastructure relative to host countries on MNE performance remains unexplored. Drawing on the integration-responsiveness (IR) framework, we suggest that a non-linear, U-shaped pattern governs the relationship between digital internationalization and performance for these retail MNEs, because the costs of integration and responsiveness are dominant at lower levels of internationalization while their advantages become more pronounced with increased internationalization. Further, we argue that the digital internationalization and MNE performance relationship steepens (a) with a higher international physical presence and (b) for firms originating from home countries with superior physical infrastructure relative to their host countries. Utilizing an 11-year panel of some of the largest retail MNEs, our research contributes to international strategy literature by extending the IR framework to a multidomain digital and physical context, stressing the strategic importance of firm- and country-level physical resources and infrastructure in digital internationalization. • A U-shaped relationship exists between digital internationalization and firm performance for retail MNEs. • Performance initially decreases at low levels of digital internationalization as responsiveness costs exceed integration benefits due to challenges in digital market adaptation. • As MNEs progress in digital internationalization, the benefits of integration from coordinated digital operations outweigh the costs of responsiveness, resulting in positive performance effects. • The U-shaped relationship between digital internationalization and MNE performance steepens with a higher international physical presence and for firms originating from home countries with superior physical infrastructure compared to their host countries. • By extending the Integration-Responsiveness framework to a multidomain digital and physical context, the study advances our understanding of how digital channels impact international business performance, highlighting the interplay between digital and physical strategies. • Managers are advised to adopt hybrid strategies that combine digital and physical assets to optimize digital internationalization performance.